#8 - Lease Option a/k/a "Nothing Down"

As the name implies, "Lease/Option" is where you lease the property belonging to another with an option to buy.

It is the corner stone of every "Nothing Down" system out there.

The most basic lease/option play is the "Sandwich Lease/Option". In a sandwich lease/option an investor agrees to lease the property from a property owner, again with an option to buy and then turns around and leases the property to another giving them also the opportunity to purchase in the future. When the new "buyer" elects to purchase, the investor then exercises their option and makes a profit by structuring the deal in such a way that there is one.

That's it.

It's just that simple, and of course, just that complicated.

Complicated..?

As they say, "The devils in the details".

To be successful at this (or any other investing strategy) you need to focus on both the end result (a/k/a Desired Outcome) as well as the execution. To make even the most basic lease/option strategy perform correctly (as in making a profit without getting brain damaged) you need to have the right documents, the right marketplace and the right team around you.

Specifically, you need the right documents. Again, real estate is a local game (or at least regional). What works in Florida or New Jersey may or may not work in Maryland or DC, and might even get you in trouble in Texas! Having access to a good attorney who can not only draft an agreement that is enforceable, but can also share with you the wisdom of what they know works and doesn't from a business perspective is invaluable, particularly for the new investor.

Second, you need the right market. I don't mean an "up market" or a "down market". Even in the subcategory of lease/options there are sub, sub categories. As an example, Wendy Patton has become famous for her lease/option strategies focusing on higher-end homes in exclusive suburban communities around Detroit (where all the high paid auto-execs live). Her strategy is a beautiful one. She focuses in on people who do not "NEED THE MONEY", rather it is a hassle for them to own two high-end homes when they are transferred or retire. She also works through Realtors(r) and has a very long-term perspective to her "core" lease/option strategy. Minh Pham, a local investor in DC, and most recently Southwest Florida on the other hand focuses in on "blue collar, working class" neighborhoods. Neither strategy is "Right" or "Wrong", both WORK for the two investors who created them. Right here in the DC area there are MASSIVE layoffs taking place in and around an area known as Dulles, Virginia due to the "Right-Sizing" of AOL by its parent company Time-Warner. For many of these people a "viable" option is to take a job in Silicon Valley and COMMUTE! Yes, they hope on a plane (some doing it every day - insane) from Dulles Airport to San Jose, CA. They do it to "save their homes". Of course, after 2-3 months of this they will ultimately decide to move to San Jose, or get a new job. These are perfect candidates for lease/option strategies the way Wendy Patton teaches it!

Once you make the time to learn all the "ins and outs" of lease/options, you will see that there are multiple opportunities to put lease/options into play right where you live - today. So you do not have to go "Cross country" looking for the right market to do lease/options. You simply need to figure out which lease/option strategy is the correct one for each of the markets close to you, now.

Finally, you need to have the right team. Earlier I spoke about the right documents. Well the right documents come from the right attorney, so having a good real estate attorney on board early is crucial. Even if you get something out of a book, or course, you still want YOUR attorney to review it BEFORE you actually use it. In addition to the right attorney, if you are new to lease/options (and definitely if you are new to real estate) you will also want the right mentor - preferably someone with experience in your local market. Like everything else in this business, the more you focus the faster it will go, and the bigger the profit per deal you will make. In almost every area of the country today there are good real estate investor clubs. To get the list of clubs in your area go to http://www.NationalREIA.com and look up their member clubs. After you get the list, visit the clubs and ask the club leadership "who in your club seems to really do well with lease/options", then take them to lunch and interview them. If they wont do lunch and have a stellar reputation, offer to pay them $500.00 to sit in their car for a day and look over their shoulder. If they are any good at what they do (which is why you want to spend time with them) $500.00 is NOTHING to them, but it does indicate that you are at least 1/2 way serious and will get their attention. Since many people I know (some very well) are making at least $50,000 per transaction, if you get the name of their attorney and learn one or two things that day, the $500.00 is an easy decision.

The truly great thing about lease/options is that they tend to work best in slowing, or changing real estate markets. This is because the best candidates are usually people who attempted to sell their house for a specific price within a specific time frame but could not for some reason (usually because they are asking too much). Once they are completely frustrated and fire their agent, they are ready to "deal".

There is an unspoken rule in this business: "My price and your terms, or your price and my terms". Lease/Options are great for making a deal with people who are "hung up" on their price, and are now ready to work with someone else's terms.

Build a team, get the right documents and go out and make some money using lease/options. RIght now in most markets across the country the time is PERFECT for this strategy!